Fee-Based Annuities? Positive Developments from the IRS

September 3 2019

by CreativeOne - www.creativeone.com

In August, the IRS delivered a sign of hope for fee-only advisors who want to offer annuities to their clients.


The IRS issues private letter rulings (PLR) to Nationwide, Lincoln Financial, and Great American Insurance that allows up to 1.5% to be deducted from their non-qualified annuity products each year without triggering a taxable event.1

If you’re a fee-only advisor who offers annuities, you likely know how important this development is. For years, fee-only advisors have struggled with the implementation of annuities in non-qualified accounts. The advisor has to deduct a fee from the annuity assets as compensation. Historically, that fee has counted as a withdrawal, which triggers a taxable event in a non-qualified annuity.

For that reason, many fee-only advisors have avoided annuities in taxable accounts. Others have developed workarounds, such as pulling the fees from other accounts or assets. However, those workarounds could often disrupt a client’s strategy and create administrative work for advisors.

Last month’s PLR could change the approach to annuities for many RIAs and other fee-only advisors. Under the PLR, an RIA can pull advisory fees from a non-qualified annuity without creating tax consequences.2 Advisors can now pull fees directly from annuity contracts rather than through complicated workarounds.

It’s important to note that the PLRs apply only to the specific companies that requested the ruling. So far, Nationwide, Lincoln and Great American have PLRs for their products. More insurance companies will likely follow suit. However, you’ll need to be sure that a carrier has a PLR for their products before you pull advisory fees from a contract.

CreativeOne can help you identify the carriers and products that best meet your clients’ needs and your business objectives. Let’s talk soon about which annuities may fit best into your fee-based practice.

Contact CreativeOne today at 800.992.2642 and let’s start the conversation.



Related terms: Annuities, Industry News

Join the conversation